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Amedisys: Home Health, Hospice Shines, Reimbursement a Drag

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On Oct 3, we issued an updated research report on Baton Rouge, LA-based Amedisys Inc. (AMED - Free Report) . The company provides home health and hospice services throughout the U.S. to a growing chronic, co-morbid and aging population.

Amedisys experienced strong organic growth in Medicare and non-Medicare revenues under the Home Health segment during the second quarter of 2016. The company is striving to improve the quality of care as well as execute disease management programs catering to the needs of patients served by the hospitals. Amedisys is also trying to expand its business by drawing more referrals from hospitals. In the Hospice space, Amedisys recorded strong quarterly same-store admissions growth.

The company is also expected to benefit from the aging demographics of the U.S. population and the need for higher acuity patients to be taken care of in a home nursing environment.  In addition, with rising demand of healthcare services in the U.S., we believe Amedisys will continue to benefit from increased volume shift from higher-cost institutional settings to a lower-cost environment such as home health.

We are also upbeat about the company’s strategic acquisitions and partnerships. The company is developing and acquiring new business lines that will complement its existing home care and hospice businesses. In line with this strategy, Amedisys recently entered into an agreement to acquire Professional Profiles, a personal care company in Massachusetts. The company’s strong cash balance position reinforces our confidence in the stock.

However, the recent proposed CMS rule for Home Health in 2017, which includes a shift to a budget neutral plan for reimbursement, may weigh on the company’s growth. Amedisys has also recorded a high cost of service revenue of 17.5% with a rise of 8.6% in expense on salaries and benefits and an 8.2% increase in other expenses.

We are also concerned about Amedisys’ intensifying competition from local privately and publicly-owned and hospital-owned health care providers. Since the market for home health and hospice is fragmented with a number of small local providers, there are only a few barriers to entry in this market. The competition is based on the availability of personnel, the quality of services, expertise of visiting staff and the price of services. In addition, Amedisys competes with a number of non-profit organizations that finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions that are unavailable to the company.

Zacks Rank & Key Picks

Amedisys currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical product sector are GW Pharmaceuticals plc (GWPH - Free Report) , Quidel Corp. (QDEL - Free Report) and NuVasive, Inc. (NUVA - Free Report) . GW Pharmaceuticals and Quidel sport a Zacks Rank #1 (Strong Buy) while NuVasive carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals recorded a 91.07% gain year to date, far better than the S&P 500’s 5.74% over the same time frame. The trailing four-quarter average earning surprise for the company is 41.67%.

Quidel gained 12.42% in the past one year, higher than the S&P 500’s 8.76%. Over the next five years, the stock is estimated to record earnings growth rate of 20%, above the industry average of 14.8%. 

NuVasive rallied 26.13% over the past one year compared to the S&P 500’s 8.76%. Over the next five years, the stock is expected to see 16.7% earnings growth compared to the industry average of 14.8%.

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